What "deals" would you qualify for Subject-To?

Question

Sub2, Subject 2, not sure if there is just one way to say it...

My question is, "When does Sub2 apply?"

I've got a 3bd/3bd duplex that:

• The owner owes $35k
• There is a tenant of 20+ years on one side
	
		Pays $450/mo
• Pays $450/mo
• The other side is rentable with $10k or less in repairs
	
		Rent rate should be $550/mo
• Rent rate should be $550/mo

• Pays $450/mo

• Rent rate should be $550/mo

Truthfully, I don't think I have a buyer for it at this time... I would imagine it would need to sell as a turnkey and it would be tough for me to wholesale it.

I'm not sure what the existing mortgage amount is, but before I spend anymore time on the deal I want to know what would qualify this one...

(I'm not putting this into "Analyze" forum because the question applies to all deals I come across in the future)

The duplex is in Indianapolis, Indiana.

@Rodney Kuhl Account Closed

PS I'm familiar with the "Alienation Clause" aka "Due on Sale".

Manny Cirino · Answer

The few simple things you may want to analyse first are,

what can you rent for? compared to what there mortgage is? so basically you are looking to see if it will cash flow.

Is the Interest rate fixed or adjusted able? if it is fixed that is good as long as long as the cash flow make sense. If it is adjustable how long after does it become adjustable? is it adjustable from day 1 or is it a 5/1 arm loan? meaning is it fixed for the first 5 year then becomes adjustable after that?

Do they have equity? is the property's value worth more than the loan?(in my opinion this would not matter on a $36,000 loan since there are not may years left in it anyways and soon you would own out right)

what is the 20 year old tenant rent record? just because they have been there for years does not make them a good tenant and 1 vacant apartment plus one bad tenant would be reason enough to sell. as for rent role and see the history.

are ther code violations on the property? tenats often get code violations(this would surface during title search)

even though the property mortgage may have a few years left do the numbers make sence? you state $10k in repairs and I can see that for a rental property(unless you need roof, kitchen or bathroom work).

lets just say repairs are $10k you still have about $100 - $150 for land trust, $50-$75 for title search,$500 - $1000 attorney fees and you still have not discussed a down payment.

You have to take in to consideration that you are only repairing one side so what if you spend this $10k and have to dish out more on the next side.

there are many things to factor here.

Shawn Holsapple · Answer

I usually look for a few qualifiers:

Must have a good, fixed, APR locked in.  Preferably under 5%

PT&I must be less than market rent.  I prefer at least $200

The balance of the loan must be below the current appraised amount

If I can get all of these to line up and the seller is motivated, then I move forward. Note: I've only did this with a single family home.  I know there are many investors looking for "seller financing", I would think that it wouldn't be hard to find a buyer and you stay in the middle to get their down payment, cash flow and balance profit at the end.

Your above deal sounds over priced for our area and the amount of work needed.  The sub2 feature definantly makes it more attractive.

Shawn Holsapple · Answer

Actually, @Taylor Jennings hosts it.  Here's the link.

Taylor Jennings · Answer

@Manny Cirino There wouldn't be a downpayment.

@Shawn Holsapple I'm getting tired of the eastside of indy.... So many bad areas.

@Rodney Kuhl and I just sent out our first direct mail campaign based on 300+ driving for dollar houses. Already got two calls today ha

I feel like I'm about done with bandit signs... THOUGH I did get my first deal which earned me $7k on one. I guess it's worth posting them up still.

See ya Thursday. (Wednesday if you're going to wholesale houses event)

Shawn Holsapple · Answer

That's not a very good area and the low rent just hurts the deal even more.  The rehab amount really kills the deal for me.  $45k all-in for ~$1,000 in rent in a rough area is on the higher side.

I'd ask the seller to make the other side rent ready for the same price.  I know it's a stretch but you never know.

Otherwise, I'd walk away!

I've owned several of these lower end doubles and singles and hated them ALL.  I now own a total of zero of this type of property.

We can discuss more Thursday night at the BP meeting.

Aaron Montague · Answer

@Taylor Jennings

Using conventional financing I'd probably pay upwards of 48k for that property as long as I could roll the rehab into the mortgage.

That also assumes 48k is reasonable for the area.  From @Shawn Holsapple 's comment, it seems like it might be high.

I don't know much about Sub2.  Are you asking if this would be a Sub2 Wholesale deal?  I know you said you were thinking about buying it yourself, so I'm curious what the Sub2 considerations(is that the term?) would be.

Taylor Jennings · Answer

@Andrew Syrios I'm thinking of buying it myself. Not wholesaling it.

Taylor Jennings · Answer

@Shawn Holsapple It's off Denny just north of Christian park.

The owner is motivated and owns four of these type of duplexes.

It's the only way she is going to be able to get out from under them.

I'm thinking, if she was able to hold them and make money for this long then why should I be able to?

Andrew Syrios · Answer

My thoughts with subject-to's is the whole point is to get into a deal for little down. If you're going to do a large rehab, there's not much of a point as many banks will finance 75% of the rehab as well as the purchase. Now $10,000 isn't that bad, but on a $35,000 property, your LTC is only like 78%. So, it would depend on how confident you are that you can find a buyer. If you have a long buyer's list or know some other investors who would like that thing, then it's probably worth getting under contract and floating it by them. If not, it's probably worth passing or just trying to wholesale or bird dog it.

What "deals" would you qualify for Subject-To?

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